Monday, December 10, 2018

Even before today’s announcement that the Brexit vote would be pulled, a number of media leaks indicated the EU’s plan in case of a parliamentary defeat. According to Reuters, the EU had been planning to concede a number of cosmetic changes. However, those changes would not be made to the withdrawal agreement, but onlyto the non-binding political declaration.

As one EU diplomat said: ‘we could look at doing something cosmetic, relatively quickly. First, we would have to hear from May, see what they want’. Another EU diplomat, however, warned that ‘if she falls short of a hundred votes, it’s probably not doable.’ It now makes sense for the EU to go ahead with this plan, now that Theresa May has essentially suffered a virtual defeat in Parliament. An ‘EU source’ confirmed this after learning about the delay of the vote, saying ‘She’ll get ‘optics’ but little of substance’.

These anonymous statements go against endless public denials from the EU that changes would be possible. But as the former president of the European Commission Romano Prodi explained to those taking the words of EU politicians a little too seriously: ‘Look, when the British parliament has still to vote you are obliged to be in this position. But then of course the day after you start dealing. This is politics.’

The EU is much more unwilling to consider a renegotiation of the withdrawal agreement itself, stressing this both in public and in private meetings. One reason for this, is that the 27 EU member states would want to reopen the debate about compromises they had made as well. It’s no secret they aren’t too happy with some of the elements of it, such as UK businesses enjoying tariff-free access to the EU without having to follow EU regulations, even if that’s – to a certain degree – the case for Turkey as well.

If Theresa May secures cosmetic changes that still fail to secure parliamentary support in the UK, what the EU may try next – again according to rumours – is to extend UK membership, if the UK asks for it. Reuters notes that apart from that, ‘even helping Britain halt the Brexit process altogether, as many EU leaders have regularly said would be their ultimate preferred option’ is something that is being considered.

Thiswishful thinking is often expressed in Brussels, but it ignores the many hurdles to reversing Brexit, despite today’s ECJ ruling which enables member states to unilaterally revoke Article 50. First of all, the Labour party would need to back the idea of a second in/out referendum, an early election would need to be called and Labour would need to win it. Then the electorate would still have to vote to actually remain in the EU. Meanwhile, UK membership of the EU would need to have been extended, at the request of a Conservative Prime Minister, as Labour is unlikely to enter power before the end of March. If there was no extension of UK membership before the end of March, a second referendum could only offer EU membership without all the opt-outs and special arrangements the UK currently enjoys. And even if the UK did stay in the EU eventually, it would be a much more difficult partner to deal with than before 2016. People really haven’t thought this through.

Apparently, also in mainland Europe and not just in the UK, governments are somehow hoping that a ‘market reaction’ may help to convince British MPs to support the deal. But hoping for a very uncertain result, which would only be achieved with a degree of chaos, isn’t much different from gambling.

At the moment, it’s not clear whether any changes – cosmetic or more fundamental – to either the political declaration or the withdrawal agreement would lead to more or less British sovereignty. Supposedly, the proponents in the UK of Norway plus – which would in effect mean that the UK remains a rule-taker indefinitely, may succeed in winning over some ‘Remainers’, including pro-EU Labour MPs. But the latter do not seem to be playing ball, rightly pointing out that the UK would have more sovereignty if it remained a member.

Dominic Raab, meanwhile, had been pushing hard for a unilateral right for the UK to leave the ‘backstop’ status, which currently isn’t in the withdrawal agreement, as a joint EU-UK decision is needed for it. But here the EU really only possesses a theoretical veto over the UK regaining trade powers. That’s because the UK can always end the withdrawal agreement, as it can end any international treaty, if relations go sour and no trade arrangement is agreed. Sure, the UK would risk causing a costly ‘cliff-edge’ event, but it would be costly for the EU side as well, so both the UK and the EU would have an interest in staying at the table.

Perhaps changing the withdrawal agreement may not even be necessary, as a right of withdrawal may be implied from the nature of the treaty, due to the ‘best endeavours’ obligation to agree a trade deal. This is, however, subject to a very specific interpretation of international law, so both sides could issue an interpretative declaration stating that if one side did not negotiate in good faith, it would be considered a material breach of the treaty, allowing the other side to suspend the operation of the backstop.

The are other big stumbling blocks for eurosceptics: the differencesin customs regimes between Northern Ireland and mainland Britain, and the role of the ECJ, may be harder to deal with without reopening the withdrawal agreement. To scale back the role of the ECJ – which can decide over disputes related to EU law – is something the EU is very unlikely to concede, if only because the ECJ may strike down parts of the withdrawal agreement that reduce its role.

Then, scrapping arbitration altogether from the withdrawal agreement could be a way out. An arbiter is also not foreseen in EU-Swiss relations, which functions just fine, regardless of EU grumbling. Actually, the Swiss government has just refused an update to the EU-Swiss arrangement that would introduce the exact same arbitration model with a role for the ECJ as agreed by Theresa May. In response, the EU has already threatened to restrict the access of Swiss stock exchanges to EU investors, something Switzerland apparently will manage to circumvent. It all indicates that everything really is up for negotiation.

The EU shouldn’t despair that it will need to go to the negotiating table once again, because this is still only the beginning. Brexit truly means eternal negotiation between the EU and the UK, over market access, the extent to which each of the partners aligns it regulations, what happens when one side changes its rules and all kinds of cooperative schemes.

Sunday, December 09, 2018

For the 24th
time now, a global UN climate conference is being hosted, this time in Katowice,
in Poland. As countries around the globe are dealing with this policy
challenge, the political debate surrounding it all is being plagued by a number
of myths, which I’ll highlight hereunder.

1. The scientific consensus is less clear-cut
than often presented

In the “climate
change” debate, grand statements are typically made about how the science would
be “settled” that the climate would be warming due to human activity and that
this has all kinds of proven consequences. Any sceptical attitude about these
claims would qualify one as “anti-scientific”.

That last
claim is easiest to counter: scepticism is the very cornerstone of science,
which has brought so much benefits to humankind. To find anti-scientific
instincts, it is better to look at the attitude of some “climate activists”
instead, some of whom have adopted a rather religious outlook on things. Ironically, religious
groups themselves seem to be responding quite well to their climate
counterparts, with the Swedish church just having named a 15 year old climate campaigner as the successor
of Jesus.

However, on
a more serious note, the scientific consensus that humans would be to blame or
that the earth would even be warming isn't all that clearcut. It certainly
isn't supported by “97% of climate scientists”, as has been claimed by for example former US President Barack
Obama. Economist Richard Tol, who has been active in
the Intergovernmental Panel on Climate Change (IPCC) since 1994, has debunked the research on which this figure was based,
amongst others revealing that “most of the papers studied are not about climate
change and its causes”. He nevertheless states that “there is widespread
agreement, though, that climate change is real and human-made” but “there is
disagreement, of course, particularly on the extent to which humans contributed
to the observed warming”.

Last but
not least, there is the often cited claim that there would be more
unprecedented weather extremes due to human-made global warming. This is simply
contradicted by the latest US government report, which finds that “drought
statistics over the entire contiguous US have declined,”. The IPCC itself has
also stated that increased floodings were “not” due to human influence.

Nevertheless,
for the sake of the argument, let's take the view of those scientists who think
humans have a very big effect on global warming and that climate change is
having all kinds of dire consequences.

2. The real cost of climate change isn't as
catastrophic as presented

A brand new
US government study was reported as concluding that
global warming would shrink the US economy by 10 percent. However, a closer look by “skeptical environmentalist” Bjørn Lomborg reveals that this 10 percent reduction by the
end of this century would come from an economy that's 300 percent larger than
it is today. What's more, that 10% off the 300% bonanza should actually only be
maximum 5%. That's because the "10%" - figure is based on the
assumption that temperatures will increase by about 14 degrees Fahrenheit,
which is almost twice as high as figures coming from the US climate assessment.
This also indicates how difficult estimates are in this field.

Another
important thing to know is that two-thirds of the estimated damage to the
economy would result from people dying from heat. In reality, however, Lomborg
explains that while it is true that more people die when it is unusually hot,
people also adapt very quickly, so even a 14% increase in temperature would
never translate in an equivalent increase in mortalities. In a nutshell: the
massive economic growth we can expect by the end of this century will only be
hit marginally by climate change even if the direst predictions turn out to be
correct.

3. Political action has a modest effect on limiting
global warming at best

If climate
change would be a big danger after all, the sad truth is that there isn’t so
much political action can do about it. At least, that’s the obvious conclusionof findings by economist William Nordhaus, the
winner of this year’s Nobel Prize.

He
estimates that even massive taxes would only affect global warming to a very
limited degree. According to his calculations, a globally coordinated and
gradually increasing carbon tax would cut temperature rises only to 6.3
degrees, which is only slightly lower from the 7.4 degrees if nothing is done.
Not only the election of US President Trump, but also of the new Brazilian
President, an ally of Trump when it comes to climate change, as well as the
violent protests in France against the ecologically inspired fuel taxes,
indicate that global coordination would be in effect very hard to achieve.
French President Macron, a strong proponent of "climate action",
cannot even convince his own countrymen, so how could he convince the world?

What's
more, to achieve the targets of the Paris Agreement to limit temperature rises
to 3.6 degrees (F, 2 degrees C) would according to Nordhaus cost around $134 trillion.

Nordhaus notes that when the “modest” taxation, to prevent temperatures from rising more
than 6.3 degrees, would be tried, the benefits would be higher than the economic cost extra taxes cause to the economy, but as said, this is hard to implement. He however calculated that if the more
extreme taxation at a cost of$134
trillion would be imposed to prevent temperatures from rising more than 3.6%,
this cost would be so astronomical that the medicine would be worse than the
disease. So if we would want to limit temperature rises to 3.6%, as prescribed
by the Paris deal, we shouldn’t even need to try that very unrealistic global
coordination exercise.

Does that
mean that we may as well live it up and enjoy it all, as long as it lasts? Of
course not. It suggests that it may be more prudent to pour the available
resources into mitigation of many of the unforeseeable consequences, rather
than waste them on prevention.

4. Many climate policies aren't necessarily
good for the climate only because they carry the “climate” label

It can be
entertaining to highlight the hypocrisy of some of the climate campaigners, how
the 22.000 delegates at the UN climate conference in Poland emit more CO2 in 11 days than 8000 households do during
one year, with anti-meat groups calculating that meat consumption at the
conference would equal burning 500,000 gallons of gasoline.

That’s of
course not a serious argument against current “climate change” policies. What’s
much more troubling is that many of the actual policies have ended up hurting
the cause they are supposed to support. The EU's “emission trading system” (ETS), which was meant to force
companies that emit CO2 to provide compensation but at the same time allow them
to buy the right to emit, so to optimize this process, has ended up supporting big manufacturers that emit a lot
of CO2. Those companies simply told policy makers they needed to be receive
free emission rights or would have to cut jobs. The politicians listened and as
a result, smaller companies ended up bearing a proportionally larger brunt than
their big competitors, thereby distorting fair competition.

On top of
that, many technologies that are bad for emission levels or that hurt the
environment have been receiving distorting state subsidies. Diesel-fueled cars
for example were thought to emit less CO2 than their petrol
counterparts, while driving electric cars – that enjoy tax breaks - won’t make
a dent in global carbon emissions, and may even increase pollution levels, the International
Energy Agency has just warned. Biofuels were originally seen as blissful before they were seen to be damaging. Hazardous
materials are needed to produce solar panels while the
environmental downsides of wind turbines have also been documented. All of
these energy sources have been receiving state support, under the guise of
“saving the climate”.

Meanwhile,
nuclear energy is enjoying some renewed support. One prominent climate
scientist, Valerie Trouet, recently even said that it is “too late” to try to develop wind
and solar energy, and we better double down on nuclear energy, which has a low
carbon footprint. Prominent environmentalist George Monbiot already changed his
opinion in 2011, right after and because of the Fukushima nuclear disaster in
March of 2011, as he considered this to be the ultimate stress-test for
nuclear, as he wrote: “a crappy old plant with inadequate safety
features was hit by a monster earthquake and a vast tsunami. The electricity
supply failed, knocking out the cooling system. The reactors began to explode
and melt down”, as “no one has yet received a lethal dose of radiation”,
something that perhaps today, in 2018, may be up to one person.

Then
politicians, like for example German Chancellor Angela Merkel,
stand in the way of this, as they have associated themselves with an
anti-nuclear stance.

Renewable
technology holds great promise, but how responsible is it to exclusively rely on it while ignoring very real
downsides? Apart from their environmental downsides, Wind and solar energy
infrastructure operates part-time and needs back-up capacity, driving up
electricity prices. How wise is it to declare only one particular kind of
energy production environmentally friendly and economically viable? Renewables
have made great headway and are a more “decentralized” way of energy
production, in contrast to old, often crony energy sources, with their more
“centralized” structures . Renewables should not fear a “level playing field”
whereby energy sources can freely compete without subsidies and political
distortions, as long as external costs are born by the polluter.

5. Financial transfers between states cannot be
assumed to be implemented well, on the contrary

Under the
2015 Paris Agreement, the world’s wealthy countries have pledged to provide developing states with at least
$100 billion a year (starting in 2020) in funding to ease the latter’s
transition to renewable energy, and mitigate the harms of climate change. The
idea behind this is that developing countries will need to forswear fossil
fuels, at some potential economic cost.

We cannot assume
that transfers of money between governments will happen according to the rules.
Past evidence suggests we should assume the opposite. US President Trump's
administration, which is trying to leave the agreement but can only do so by
2020, has been trying to undermine this, by suggesting developed countries should be able
to count commercial loans as transfers or by disputing the definition between “developed”
and “non-developed”.

This all
shows that this process is basically already being corrupted from the
beginning.

It’s not
the first time that the assumption that everyone will play by the climate rules
is a fatal one. A study published in Nature Climate Change in 2015
already found that due to weak environmental oversight of the UN’s 1997 carbon
credit scheme, there were “perverse incentives” for some industrial plants in
Russia to increase emissions, so they could then be paid to reduce them. As the
controlling responsibility fell on the host country, checks weren't done in a
proper way. Not only Russia, but also Ukraine was highlighted as problematic,
with over 80% of the credits issued by Ukraine and Russia raising significant
concerns about environmental integrity, according to the study.

The lesson
is that we must assume that transfers between governments will go wrong. A positive
aspect of Paris is that it exempts developing countries to a degree, as developing
countries only need to lower emissions based on units tied to
measures such as gross domestic product or economic output. The idea to provide
large-scale “climate finance”, up to 100 billion euro carries a major risk of
cronyism.

Wednesday, December 05, 2018

Never underestimate French protests and never underestimate tax protests. Still, that seems what French President Emmanuel Macron has been doing...

While the so-called “yellow vests movement” has drawn a few hundred thousand people to sometimes violent protests and road blockades against high taxes on diesel, leading to two deaths and more than 500 people injured, French President Macron is travelling Europe, pontificating about things like an EU army. The protests bear a resemblance to Brexit: ordinary people have had enough, even if it isn't always clear of what and even if they have been voting for the parties responsible for high taxation. However, to dismiss their anger and to double down on policies to tax diesel, as Macron seems to do, may be very risky.

Former US President Ronald Reagan once described what, according to him, was typically a government’s view of the economy: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” With diesel, the cycle started with subsidies. Between 1995 and 2015, the share of diesel cars on European roads doubled to around 50 per cent. Without government support for diesel-fulled cars, which were thought to emit less CO2 than their petrol counterparts, researchers have concluded the share would have remained constant around 25 per cent.

Now that we’ve arrived in the taxation stage, which has pushed up prices by 23 percent in France over the last year, Macron is feeling the heat. Some 77 per cent of French people now support the yellow vests movement, and the number isrising. Even among Macron’s own voters, support stands at 41 percent. Some of the leaders of former President Hollande’s party are also on the street, despite being the ones who came up with some of the taxes that are being contested. The centre-Right and hard-Left opposition have also united against Macron to express support.

The French socialist party has accused Macron’s government of trying to link this grassroots movement to the far right Marine Le Pen “to better disqualify it”. But according to sociologist Vincent Tiberj, the yellow vests movement derives largely from the lower-middle classes, who earn enough to pay taxes but not enough to live comfortably. A lot of the protesters come from “La France profonde”: small towns and rural areas that have often gone through dire economic times, far away from the world of Emmanuel Macron, a former investment banker.

Macron himself has reacted by saying his government intended to “tax fossil fuels more” as a way to “support the poor”. Unfortunately for him, it seems the poor are not so keen on the method. A poll reveals that 82 per cent of French thinkthe government should simply scrap the increase in fuel taxes foreseen for January. Macron’s popularity meanwhile continues to tank, from a 29 per cent satisfaction rate in October to 25 per cent just one month later. One in three French do not have an alternative to driving to work and cars are essential not only for economic but also for social reasons, preventing social isolation of the more vulnerable. For many people, this is not something to mess around with.

Is this Macron’s “let them eat cake” moment? The phrase, attributed to Marie Antoinette, the last Queen of France before the French Revolution, was apparently uttered by her after she learned that the people were suffering due to widespread bread shortages. Suggesting that the ever higher fuel taxes are necessary for the environment may have the same effect on many of the “yellow vests”.

Even if these taxes are needed to save the environment, many may wonder why then people were encouraged to buy diesel-fueled cars in the first place. They may also wonder why then only 184 million from the 3.9 billion euro extra income from the so-called “domestic consumption tax on energy products” raised this year will be used to finance the “energy transition” and why the rest will be used to help cover France’s extensive budget deficit. That’s especially the case as these taxes hit the less well-off harder, due to the fact that they tend to use older vehicles.

Of course, if France weren’t the country currently leading the global ranking of government spending to GDP, people may be more relaxed about an extra 50 euro per month to fill up their tank to save the environment. But France’s “tax freedom day”– when people start working for themselves - only comes on July 27. Then the French government seems more keen on new taxes than on spending cuts. New taxation initiatives meanwhile include tax hikes for health care providers – a baffling 40% for 2019 -, on garbage collection and tourist accommodation.

How will this not hit ordinary people? If a completely spontaneous yellow vests movement can already hit the revenues of big French supermarkets with 55 per cent in one day, one should wonder what will happen if the protestors start organizing themselves properly.